Microfinance: Borrowing a future
In the Netherlands you can get a bank loan to set up a hairdresser’s, an agricultural business or an Internet café. However, this is quite different in developing countries. Poor entrepreneurs often do not qualify for a bank loan because they do not own property that can serve as security for the loan or because they do not have a permanent address. Fortunately, an increasing number of local banks provide credit to these entrepreneurs, enabling them to set up their own businesses.
Microfinance is a small loan ranging from fifty to a few hundred euros. This is enough for a poor entrepreneur to buy a cow, a computer or a few coffee plants. Microfinance can be the window to a better life. Tens of millions of people have already benefited from microfinance, and these loans are an important tool in alleviating poverty.
Hivos does not directly give microfinance to poor entrepreneurs, but it gives financial support to microfinance institutions (MFIs). These MFIs provide small loans to millions of people in developing countries. Hivos works with a ‘growth model’, supporting MFIs in building their businesses, not only with a starting capital but also with advice on how to run them.
With this starting capital – a seed capital package – new MFIs can get started. Once they are organisationally and financially solid enough, they qualify for regular loans of the Hivos Triodos Fund. This fund helps MFIs to develop into interesting customers for other funds and commercial banks. These banks, however, have high standards and only work with the very best MFIs. Hivos aspires to helping develop these new MFIs into top quality players in the financial industry.
The Hivos approach in a nutshell:
-Hivos gives credits to the poor, particularly women, people in rural or remote areas and customers with HIV/AIDS;
-Hivos develops new methods in the fields of leasing, savings and insurance; but also in other areas, such as making it easier for migrants to transfer money to their families;
-Hivos uses new methods to be able to offer financial services at the lowest possible rates, for example through the use of mobile telephones;
-Hivos professionalises MFIs through training courses on customer-driven product development, internal control, financial reporting and communication with sponsors and investors;
-Hivos encourages knowledge sharing and networking between MFIs.
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